Explanation

This risk was not identified in the FDD Package. Item 20 data indicates that the franchise system has been contracting in size over the last three years, not growing rapidly. A risk of rapid growth occurs when a franchisor expands too quickly for its support infrastructure to keep up, potentially leading to inadequate assistance for franchisees. This does not appear to be the case here.

Potential Mitigations

• As a general practice, a business advisor can help you evaluate a franchisor’s growth plans against their stated support capabilities.
• An accountant should review the franchisor’s financial statements to ensure they have the capital to support their stated growth trajectory.
• Your attorney can help you ask existing franchisees about the quality and timeliness of support they currently receive.

Explanation

This risk was not identified in the FDD Package. The Beef 'O' Brady's brand and system have a long operational history, with the predecessor company starting to franchise in 1998. An unproven system carries higher risks related to the viability of the business model, brand recognition, and the franchisor's ability to provide effective support, which does not appear to be the primary risk here.

Potential Mitigations

• When evaluating any franchise, it is crucial for your business advisor to assess the franchisor's experience in both the specific industry and in managing a franchise network.
• For newer systems, an accountant should scrutinize the financials for signs of under-capitalization or heavy reliance on initial fee sales.
• Legal counsel should be consulted to understand the operational history as described in Item 1 of the FDD.

Explanation

This risk was not identified in the FDD Package. The business concept is a 'Family Sports Pub,' which is a well-established and durable segment of the casual dining industry. A fad business is one tied to a fleeting trend, which carries the risk of declining consumer interest over the long term of the franchise agreement. This concept does not appear to be a fad.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for any franchise concept.
• It is prudent to review a franchisor's plans for innovation and adaptation to changing market tastes with your financial advisor.
• Legal counsel should review the franchise agreement to understand your obligations if the business's popularity were to decline.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses a management team with significant tenure, with most key executives having been with the company since 2017 or earlier. Inexperienced management can be a major risk, as it may lead to poor strategic decisions and inadequate franchisee support. This does not appear to be a concern based on the information provided.

Potential Mitigations

• Your business advisor should always help you vet the backgrounds of the key executives listed in Item 2 of any FDD.
• Speaking with current franchisees is a valuable way to gauge the competence and responsiveness of the management team.
• An attorney can help you understand the roles and responsibilities of the management team as outlined in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 identifies the parent company, FSC Franchise Holdings LLC, and Item 21 includes its audited financial statements and a guarantee of the franchisor's performance. Failure to disclose a parent company or provide its financials when required can obscure significant financial or operational risks from a prospective franchisee.

Potential Mitigations

• An attorney should always verify that the corporate structure described in Item 1 is complete and that any required parent financials are included in Item 21.
• If a parent company provides a guarantee, your accountant should analyze its financials to ensure the guarantee is meaningful.
• It is wise to ask a business advisor to research the parent company for any relevant history not contained in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses the predecessor entity, and Items 3 and 4 state there is no relevant bankruptcy or litigation history to report for the franchisor or its predecessors. A history of issues with a predecessor could indicate unresolved systemic problems that have been passed on to the current franchisor, so its absence is a positive sign.

Potential Mitigations

• Your attorney should always review Items 1, 3, and 4 to check for any disclosed history of predecessors and associated issues.
• If a predecessor is listed, a business advisor can help you research its public records and history for additional context.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable firsthand insight.

Explanation

This risk was not identified in the FDD Package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits against franchisees, can be a major red flag indicating systemic problems or an overly aggressive franchisor. The absence of such disclosures is a positive factor.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review the disclosures in Item 3 of any FDD.
• Even with no disclosures, your business advisor can help you conduct online searches for news articles or other public information about litigation involving the franchisor.
• Asking current and former franchisees about their experiences with disputes is a key part of due diligence.